China is on its way to become a technological superpower. According to the Straits Times, China is the only country in the world where a business can become a unicorn in less than six years – it takes seven years in the United States, eight years in the United Kingdom, and eleven years in Germany. Despite geopolitical tensions and new CFIUS modifications, China remains difficult to ignore. My job when I first started at Runa Capital over a year ago was to assist our portfolio firms in entering the Chinese market, finding the proper partners, and raising funds from Chinese investors.
In addition, in practically every conversation I had with our companies, Runa colleagues, or other global VCs, I asked: “Is it a smart idea to raise money from a Chinese VC?” Is it OK to invest alongside Chinese investors? I was startled to hear that there is little research available to address such issues, owing to a lack of appropriate English-language information on Chinese investments.
As a Mandarin speaker, I chose to address this need by performing research using our extensive data science tools built by Danil Okhlopkov and based on the Chinese VC database ITjuzi (the Chinese counterpart of Crunchbase). Using statistics and a case-based approach, I will attempt to answer the following questions:
- How much do Chinese funds invest in foreign markets?
- What is the current state of affairs?
- Is it possible for Chinese investors to provide value to Western startups?
- Who are China’s most active foreign investors?
- What are the places where Chinese funding can provide the most value?
- What kind of value might Chinese investors bring to the table?
- When a Chinese investor be invited?
Western startups pique the curiosity of Chinese investors: We calculated that Chinese funds would invest roughly $250 billion in 2020 based on data from ITjuzi (three times higher than the figure reported in Crunchbase). This statistic shows that Chinese VC investments are only 30% lower than those made by US funds, but three times higher than those made by UK funds did and 12.5 times more than those made by German funds are.
However, only 15% of investments in 2020 and 17% in the first half of 2021 were made in enterprises outside of China, a considerable decrease from 2019. Because China’s economy rebounded considerably quicker than other nations’ during COVID, many Chinese investors decided to direct their capital flows to the local market. On the other hand, as soon as the borders reopen and the global economy begins to revive, there is a huge possibility for overseas investments to recover.